This document provides an introduction to accounting fundamentals, including concepts, principles, and the accounting cycle. It discusses the characteristics and users of accounting information, and specialized fields within accounting such as financial accounting, auditing, cost accounting, and management accounting. It also covers the basic accounting equation, rules of debit and credit, double-entry bookkeeping, and how transactions affect the accounting equation. The document uses examples to illustrate accounting concepts and the journalizing of business transactions.

1. ACCOUNTING FUNDAMENTAL BY: Bayani D. Edlagan Ma. Cecilia S. Mercado

3. CHAPTER 1 Introduction to Accounting Concepts and Practice

28. TABLE 1.1 DEBIT CREDIT 1. Increase in Assets 1. Decrease in Assets 2. Decrease in Liabilities 2. Increase in Liabilities 3. Decrease in Capital 3. Increase in Capital a. Withdrawal by the Owner a. Investment by the Owner b. Increase in Expenses b. Decrease in Expenses c. Decrease in Revenue c. Increase in Revenue

32. Table 1.2 ±ASSETS ±LIABILITIES ±CAPITAL

35. Table 1.3 ±ASSETS ±LIABILITIES ±CAPITAL 1 + Cash P500,000 +Requijo, Capital P500,000

37. Table 1.4 Date DESCRIPTION Post Ref. Debit Credit Sept. 1 Cash 500,000 Nick Requijo, Capital 500,000 To record investment of the owner

40. Table 1.5 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000

42. Table 1.6 Date DESCRIPTION Post Ref. Debit Credit Sept. 5 Land 100,000 Cash 100,000 To record purchase of land for cash

46. Table 1.7 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 + Account Payable P60,000

48. Table 1.8 Date DESCRIPTION Post Ref. Debit Credit Sept. 7 Supplies 60,000 Accounts Payable 60,000 To record purchase of supplies on account

49. In the transaction recorded, Supplies (unused) was debited because of increase in assets while Accounts Payable is credited because of increase in liability.

51. Table 1.9 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 +Account Payable P60,000 4. - Cash P 10,000 - Account Payable P10,000

53. Table 1.10 Date DESCRIPTION Post Ref. Debit Credit Sept. 9 Accounts Payable 10, 000 Cash 10,000 To record payment of account

54. In the transaction recorded, Accounts Payable was debited because of decrease in liability while cash was credited because of decrease in assets.

58. Table 1.11 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 +Account Payable P60,000 4. - Cash P 10,000 - Account Payable P10,000 5. + Cash P150,000 + Fares Earned P150,000

60. Table 1.12 Date DESCRIPTION Post Ref. Debit Credit Sept. 30 Cash 150,000 Fares Earned 150,000 To record receipt of revenue from various customer.

62. Table 1.13 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 +Account Payable P60,000 4. - Cash P 10,000 - Account Payable P10,000 5. + Cash P150,000 + Fares Earned P150,000 6. - Cash P120,000 - Wages Expense P 40,000 - Rent Expense P 20,000 - Gas & Oil P 50,000 - Misc. Expense P 10,000

64. Table 1.14 Date DESCRIPTION Post Ref. Debit Credit Sept. 30 Wages Expense 40,000 Rent Expense 20,000 Gas and Oil Expense 50,000 Miscellaneous Expense 10,000 Cash 120,000 To record payment of expenses.

67. Table 1.15 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 +Account Payable P60,000 4. - Cash P 10,000 - Account Payable P10,000 5. + Cash P150,000 + Fares Earned P150,000 6. - Cash P120,000 -Wages Expense P 40,000 -Rent Expense P 20,000 -Gas & Oil P 50,000 -Misc. Expense P 10,000 7. - Supplies P20,000 -Supplies Expense P20,000

69. Date DESCRIPTION Post Ref. Debit Credit Sept. 30 Supplies Expense 20,000 Supplies 20,000 To record part of supplies in the operation of the business

70. In the transaction recorded, Supplies Expense was debited because of decrease in capital due to increase in expenses while Supplies (Unused) was credited because of decrease in assets. Note to Students – The terms “unused”, “unexpired”, “inventory”, and “prepaid” denote asset.

72. Table 1.17 ±ASSETS ±LIABILITIES ±CAPITAL 1. + Cash P500,000 + Requijo, Capital P500,000 2. - Cash P100,000 + Land P100,000 3. + Supplies P 60,000 +Account Payable P60,000 4. - Cash P 10,000 - Account Payable P10,000 5. + Cash P150,000 + Fares Earned P150,000 6. - Cash P120,000 -Wages Expense P 40,000 -Rent Expense P 20,000 -Gas & Oil P 50,000 -Misc. Expense P 10,000 7. - Supplies P20,000 -Supplies Expense P20,000 8. - Cash P20,000 -Requijo, Drawing P20,000

74. In the transaction recorded, Requijo, Drawing was debited because of decrease of capital due to withdrawal and cash was credited because of decreases in assets

76. Table 1.19

91. CHAPTER 2 The Accounting Cycle

98. Table 2.1

100. Table 2.2

102. Table 2.3

106. Table 2.4

113. Table 2.5

119. Table 2.6

122. Table 2.7

132. CHAPTER 3 Adjusting Entries and the Preparation of the Financial Statements

139. To illustrate, let us assume the following data as part of the trial balance of an enterprise rendering repair services for home appliances: Table 3.2

141. Table 3.3

144. Note that if the allowance for doubtful accounts will be increased by percentage of receivable, the doubtful accounts expense is computed by multiplying the receivable by the given percentage.

146. Table 3.5

149. Table 3.6 Adjusting Entry for Depreciation Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Depreciation Expense-Name of Asset xxx Accumulated Depreciation-Name of Asset xxx To record depreciation for the period

152. The method used in computing depreciation for the equipment is the straight-line method. This is the simplest and the most commonly used method in computing depreciation.

156. Table 3.8 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Depreciation Expense-Equipment 45,000 Accumulated Depreciation-Equipment 45,000 To record depreciation for six months.

158. Table 3.9 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 An Expense Account 20, 000 (Name of expense) Payable 20, 000 To record accrued expense for the period

160. Table 3.10 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Rent Expense 20, 000 Rent Payable 20, 000 To record accrued expense for the period

162. Table 3.11 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 (Name of Income) Receivable xxx Revenue Account xxx To record accrued revenue for the period

164. Table 3.12 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Rent Receivable 20,000 Rent Revenue 20,000 To record accrued rent for December.

167. Table 3.13 Note that asset account is debited to record the advance payment of expenses. For this reason, it is called asset method. Date DESCRIPTION Post Ref. Debit Credit 19xx Sept. 1 Asset Account (Prepaid, Unused, etc.) xxx Cash xxx To record advance payment of expenses.

169. Table 3.14 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Expense Account xxx Asset Account (Prepaid, Unused, etc.) xxx To record unexpired portion of an asset for the period.

171. Analysis. The rate of advertising per month is P20, 000 (P120, 000 ÷ 6). At December 31, the end of the accounting period, P80, 000 (P20, 000 x 4 months) of the advertising applicable to the months of September to December have expired while P40, 000 (P20, 000 x 2 months) the portion applicable to the months of January and February (next year) remains unused. At December 31, the recorded prepaid advertising is P120, 000, when it should only be P40, 000.

175. Table 3.17 Note that expense account is debited to record the advance payment of expenses. For this reason, it is call expense method. Date DESCRIPTION Post Ref. Debit Credit 19xx Sept. 1 Expense Account xxx Cash xxx To record advance payment of expenses

177. Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Asset Account (Prepaid, Unused, etc.) xxx Expense Account xxx To record Unexpired expense during the period

179. Date DESCRIPTION Post Ref. Debit Credit 19xx Sept. 1 Advertising Expense 120,000 Cash 120,000 To record advance payment of Advertising

181. Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Prepaid Advertising 40,000 Advertising Expense 40,000 To record the amount of unexpired advertising at the end of the period.

185. Table 3.21 Date DESCRIPTION Post Ref. Debit Credit 19xx Aug. 1 Cash xxx Unearned (Name of Revenue) Account xxx To record advance receipt of revenue

187. Table 3.22 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Liability (Unearned) Account xxx Revenue Account xxx To record revenue earned for the period.

189. Table 3.23 Date DESCRIPTION Post Ref. Debit Credit 19xx Aug. 1 Cash 72,000 Unearned Rent 72,000 To record advance receipt of revenue.

191. Table 3.24 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Unearned Rent 60,000 Rent Revenue 60,000 To record revenue earned during the period

193. Table 3.25 Date DESCRIPTION Post Ref. Debit Credit 19xx Aug. 1 Cash xxx Revenue Account xxx To record advance receipt of revenue.

195. Table 3.26 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Revenue Account xxx Unearned (Name of Revenue) Account xxx To record revenue unearned at the end of the period

196. Illustration. Applying the same example in the liability method, that on August 1, the business received P72, 000 from a tenant, representing a 6-month advance rental covering the period from August (current year) to January (next year), if the revenue method is used, the entry would be: Table 3.27 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Revenue Account xxx Unearned (Name of Revenue) Account xxx To record revenue unearned at the end of the period

198. Table 3.28 Date DESCRIPTION Post Ref. Debit Credit 19xx Dec. 31 Rent Revenue 12,000 Unearned Rent 12,000 To record revenue unearned at the end of the period

206. Table 3.29